A Swiftly Tilting Palate
Oct 1, 2007 12:00 PM, By Lauren Shepherd
Even in the casual dining sector, smaller spaces are becoming standard. “I have seen most of the chains coming out with a smaller footprint,” Siragusa said. That allows the national chains to move to retail centers in mid-size and small markets, which usually don't have as much space.
Brinker, for example, said in September it opened two new On the Border restaurants in August with footprints of about 4,000 square feet rather than the usual square footage of between 4,000 and 5,700 square feet. Brinker has said it is hopes the smaller footprint design will help deliver better operating performance at the new locations.
Another issue is picking the right sites. Some chains that have been popular with consumers have had problems because of poor site selection strategies.
Sandwich chain Quizno's is one example of what can go wrong when a company grows too quickly. After going public in 1994, the chain grew to 5,000 restaurants.
In August, however, the first of several class action suits was filed against the chain on behalf of about 5,000 Quizno's franchisees across the country alleging the company defrauded its franchisees by building the brand at the expense of operators. The suit alleges the company mandated that franchisees buy supplies at inflated prices and did not tell prospective franchisees all the facts about locations. The company has filed motions to dismiss the suits.
At Original SoupMan, made famous by the cranky soup chef on Seinfeld, some franchisees are becoming disgruntled with the company's management for opening too many stores too fast.
The company now operates 34 stores and plans to open another six by the end of the year. But several franchises are beginning to close in New York City, Boulder, Colo., and Myrtle Beach, S.C. among other locations.
The company says it is fine-tuning its growth plan domestically, but it hasn't shelved plans to expand internationally. The chain is looking to add 50 units in Britain at some point in the future.
Trading up in casual
Casual dining establishments have made adjustments to try and better compete with the fast-rising quick casual segment and carve out their own niche in the industry. Many of these chains are changing their brands to cater more to the higher-income crowd. “What's prevailing is quality more so than value,” said Terry McEwen, president of Poag & McEwen Lifestyle Centers LLC. “Some of the more successful restaurants are your higher priced ones.”
Tristano calls these reinvented casual dining chains “polished casual” restaurants. The defining features, he said, include a more adult experience and a higher check average. Check averages at these chains typically range between $20 and $50 per person. For example, at Newport Beach, Calif.-based Fleming Steak House, the average check is about $50 per person.
Chains that weren't already in this space have started spending money to get there. Ruby Tuesday Inc., a mall staple based in Maryville, Tenn., has embarked on a remodeling program that includes virtually every facet of the exterior and interior. The upgrade has coincided with a new more upscale menu. Ruby Tuesday is planning to remodel about 450 to 500 of its restaurants in 2008.
Clear sailing ahead?
The restaurant industry is far from insulated from the problems facing consumers in today's economic environment and some signs seem to indicate the situation may be getting worse.
In September, consumer confidence shrunk to its lowest point in nearly 18 months. The RBC Cash Index, which is based on the results of international polling firm Ipsos, had its worst showing since May 2006. “The best way I can describe the economy is cautiously pessimistic,” says Dennis Lombardi, executive vice president of food-service strategies at WD Partners, which designs and develops stores for retailers and restaurant operators.
To developers, though, he said, “a six-month or eight-month blip in the economy should not be a major problem.” It is, however, important in terms of choosing a concept. Lombardi says retail developers are now looking for “durability and maturity” in a brand to make sure it can be a success with consumers.
Even as consumers weigh their options, developers still see restaurants as a no-brainer. Restaurant companies, meanwhile, aren't putting a stop to development. “We really haven't seen a slowdown in terms of demand for locations from restaurants,” says Siragusa. It seems restaurants — whether upscale casual dining or quick casual niche concepts — are here to stay in retail locations. “Every five hours, you get hungry,” Lombardi says. “Restaurants are still going to make important tenants.”
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